Structural considerations for a prosperous Greece
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In its first period in government, between January and September 2015, SYRIZA did not experience any general strikes. Since the September elections there have been three, making the number of such protests one of the few things in Greece that is heading upwards. The other rising indicator is the number of pressing problems Prime Minister Alexis Tsipras faces.
In the daze caused by those tense and lengthy negotiations in Brussels last July, maybe it seemed that Tsipras’s toughest choices were behind him. But since then, events suggest 2016 will also be full of uncertainty and anxiety. The implementation of the measures agreed last summer, the need to revive Greece’s banks, the search for ways to get the economy back on track, the constant pressure to satisfy the country’s lenders and dealing with the fallout from Europe’s largest refugee crisis since the Second World War have placed an immense amount of pressure on Tsipras and his government, which recently marked its first anniversary in power.
During the February 4 general strike about 40,000 to 50,000 people protested in Athens, making it one of the biggest rallies in recent years. Were they protesting against SYRIZA or the policies that Greece’s international creditors are insisting on? The truth is that it doesn’t really matter much. One banner summed up the mood perfectly: “Our patience has run out.”
This is the result of the fatigue of spending 5.5 years under an adjustment programme that has failed to get Greece back on its feet and which hardly anyone believes in anymore, as well as just over a year under a SYRIZA government that promised a different economic path, fairness, transparency and genuine change but which has not been able to deliver on any of these fronts.
This creates a dangerous mix that Tsipras has to handle carefully. The impressive factor about recent protests is not necessarily their size or intensity but the breadth of society that they cover. Never before during Greece’s never-ending crisis have farmers, engineers, lawyers and doctors stood side by side. Tsipras has triggered their anger by choosing to raise their social security contributions rather than cut existing pensions. However, had he chosen to slash pensions again (they have already been cut 11 times since the beginning of the crisis to an average of 900 euros) the prime minister would have felt the wrath of pensioners instead. It is not only pensions that would feel the impact as retirement pay in Greece makes up in many cases for the lack of a proper welfare system. Tsipras is trapped.
The extent to which he finds himself in a corner is emphasised by the fact the International Monetary Fund appears to be insisting on cuts to pensions as the main path for Greece saving 1.8 billion euros (equivalent to 1 percent of GDP) this year in order to meet its fiscal targets. The IMF believes that the Greek economy cannot be taxed anymore and that all other public spending has been reduced as much as possible. IMF managing director Christine Lagarde has said that if Greece does not cut pensions to meet the programme’s targets then the savings will have to come from debt relief provided by the eurozone. Since Greece’s euro partners do not want to consider such measures, or at least steps that will bring significant savings, then there is nowhere for the government to go.
The absurdity of Greece’s position does not end there. Greece currently spends about 17 percent of its GDP on pensions, which is above the European Union average but has risen from less than 12 percent since the beginning of the crisis due to the Greek economy contracting by around a quarter. At the same time, the number of Greeks in work has fallen to 3.6 million, which is less than the 2.6 million pensioners and 1.2 million unemployed combined. The rise in unemployment during the crisis has caused serious damage to Greece’s pension funds. The country’s main social security fund (IKA) saw the level of contributions paid in by workers plummet by 31.5 percent between 2010 and 2014 as a result of people losing their jobs and those in employment seeing their salaries reduced. Tsipras is agonising over how to find 1.8 billion euros in savings, with doubts about whether his government will survive such a move, when IKA alone has lost 16.5 billion euros over the five-year period in question.
The conundrum that Greece faces is that it needs growth to recover but that in order to comply with its bailout programme, which provides the only source of funding available at the moment, it has to adopt measures (such as VAT rises, pension cuts and income tax increases) that will hold back the economy. Almost six years since Greece agreed to its first rescue package, it feels that the country is almost back where it started. Tsipras may have talked his way into power but he cannot charm his way out of this predicament.
It is a situation that has been made worse by his government’s wayward and naïve negotiating strategy last year, which saw the early signs of an economic recovery wiped out and Greece’s banks undermined. The Greek economy is expected to contract by 0.7 percent of GDP this year before growth returns in 2017. Despite being recapitalised for a third time late last year, the country’s banks have yet to play an active role in driving an economic recovery. They are still nursing the wounds of losing more than 40 billion euros in deposits in the months before capital controls were imposed at the end of June.
The sense that Greece is penned in is also prevalent in the refugee crisis. As with the bailout negotiations, Tsipras’s government spent a large part of last year not realising the urgency of the situation it was in. Greece’s response to the record influx of refugees and migrants (almost 900,000 in 2015) has improved since last summer but it finds itself snared between Turkey, which sees the flow of people towards Europe as a tool for leverage, and the EU, whose member states and electorates are growing more reactionary by the day.
The EU’s inability to stop migrants leaving Turkey and the determination of countries in central and eastern Europe to limit the number of people entering their territory means that tens of thousands of refugees and immigrants are likely to be unable to leave a country that is itself trapped.
People are arriving on Greek shores after crossing the Aegean Sea by the boatful each day, while countries to its north build fences and improve border controls. No matter what some (particularly officials from landlocked countries) in the EU say, Greece cannot stop the influx without risking migrants’ lives. So it is left with no choice but to rescue and register them. Its inability – until now – to ensure that the screening process is carried out to the standards the EU wants has caused significant tension with other member states that just want to see the flows drop and are not interested in arguments about lack of resources and preparation.
The result is that, as in the euro crisis, Greece is regarded by many as a special case: A country that is unable to act effectively unless threatened with a worse fate. The discussion about Grexit or even a Schengen exit will rage on this year but in their minds, many have already excluded Greece, viewing it as somewhat of a pariah state within the eurozone and the EU. Overcoming this psychological ring-fence is perhaps bigger than all the other challenges that Tsipras faces. Achieving it is a task that will probably outlast his premiership, even if his government makes it through the current storm.